December 02, 2013

November was an "interesting" month for JGWPT Holdings Inc. (JGWPT), the leading purchaser of structured settlement payment rights, which markets under the names of J.G. Wentworth (JGW) and Peachtree Settlement Funding (Peachtree).

Also during November, at the most recent National Association of Settlement Purchasers (NASP) Annual Conference:

Former NASP President Robin Shapiro expressed his personal outrage about "troubling reports concerning the structured settlement factoring business." At least some of Shapiro's criticism appeared to be directed toward some JGWPT business practices.

NASP Executive Director Earl Nesbitt reported a controversial new business practice that is troubling JGWPT and other transfer companies. MetLife apparently is now actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers typically remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.

As S2KM previously reported, JGW, which was founded in 1995, had already experienced a tumultuous recent history prior to November:

On June 1, 2009, JGW and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market".

Also in 2011, JGW merged with Peachtree in a stock swap, with JLL Partners retaining control of the merged companies which have each continued to participate in the secondary market.

On January 30, 2013, Moody's Investors Service announced a downgrade of its Corporate Family Rating (CFR) for JGW from B3 to Caa1. Moody's also issued the same downgrade for JGW's $425 million senior secured term loan and $20 million senior revolving credit facility issued by Orchard Acquisition Company, a subsidiary of JGW.

Estimates of secondary market experts interviewed by S2KM in late 2012 of the post-merger 2012 market share of the JGW and Peachtree varied from a low of 50% to a high of 75%. These experts also believed JGW/Peachtree's share of the estimated 2012 U.S. secondary structured settlement market profits of $120 million was $100 million, or 83%.

JGWPT Holdings Inc.'s Amended Form S-1 Registration Statement, filed October 28, 2013 prior to its November 8, 2013 public offering of common stock, provides more recent financial and marketing information about JGW's holding company. Selected data:

Generated cash from the net financing activities of its warehouse financing and permanent securitization financing facilities totalling $314.8 and $131.3 million, not counting $29.9 million generated from its most recent July 2013 securitization.

Used cash of $225.7 million and $163.3 million in its operating activities.

During 2013 prior to it IPO, JGWPT distributed $459.6 million to its "common interest holders" resulting in members' capital of $38.4 million and negative tangible equity of ($96.2 million) as of June 30, 2013.

Since 1995, JGWPT has

Spent approximately $585 million in marketing through multiple media outlets including $216 million during the past three years.

Purchased more than $9.1 billion of structured settlement payments. Its average customer has completed two separate transactions.

During an average four week period, JGWPT generates more than 510 million advertising impressions which result in 80% of its target audience viewing its advertisements five or more times during that four week period.

Kantar Media estimates that JGW and Peachtree have each spent approximately five-times more than their nearest competitor on television advertising since 2008 and together have spent over 80% of the total amount spent by all participants in the U.S. secondary structured settlement market.

JGWPT's customer databases included more than 121,000 current or prospective structured settlement recipients as of July 31, 2013 entitled to approximately $31 billion of unpurchased structured settlement payments.

JGWPT's nationwide attorney network covers over 3,000 counties. Approximately 95% of the proposed structured settlement purchases JGW and Peachtree present to a judge have been approved.

The stated purposes for JGWPT's IPO were to pay down some of its $572 million debt and to provide its pre-IPO equity holders (JLL Partners) an opportunity to earn additional profits. Post-IPO, JLL Partners continues to hold a 39% economic interest and a 63% voting interest in JGWPT while four of its partners sit on the company's Board of Directors.

JGWPT originally anticipated raising $300 million by selling 12.2 million Class A shares at a price between $19 and $22 each. When demand didn't materialize, the IPO opened at $13 per share and fewer shares were offered.

JGWPT's stock trades on the New York Stock Exchange (symbol: JGW) and closed today (December 2, 2013) at $16.45 per share. At least one financial analyst with whom S2KM has spoken believes JGWPT's stock remains substantially undervalued and is worth at least $20 per share.

For additional S2KM reporting about J.G. Wentworth and the structured settlement secondary market, see the structured settlement wiki.

November 11, 2013

Primary market representatives attending their first National Association of Settlement Purchasers
(NASP) Annual Conference are typically surprised - both by the
exceptional quality of the educational experience and NASP's
encouragement of diverse perspectives on controversial issues which have
historically divided the primary and secondary structured settlement
markets.

NASP President Patricia LaBorde's keynote remarks at NASP's 2013 Annual Conference last week in Las Vegas re-inforced NASP's policy of politically unobstructed learning. "We want to hear from all structured settlement stakeholders - even if they disagree with us or don't like who we are," LaBorde stated. "We are here to listen. We are here to improve."

Consistent with these educational objectives, previous NASP speakers
have included critics from the primary market such as John Darer and
Jack Meligan as well as attorneys who represent annuity providers in
transfer hearings such as Stephen Harris and Peter Vodola. Regular NASP
educational program features also include both a Primary Market Panel
and a Judicial Panel.

In addition to other speakers who
highlighted and criticized specific secondary market business practices
during this year's NASP conference, former NASP President Robin Shapiro
provided the most comprehensive and unanticipated assessment. Shapiro's
unannounced critique, which preceded, but was unrelated to, his
introduction of NASP's 2013 Hamilton Award recipient Jack Kelly, will be summarized and discussed in subsequent S2KM blog posts.

NASP 2013 Speakers and Topics

Jack Kelly - State and Federal Legislative and Regulatory Developments.

Sponsors
- NASP conferences invariably attract more sponsors than any other
conferences S2KM attends. NASP sponsors this year included Google and
NBC.

Legislation and Regulation - Secondary
market legislative and regulatory developments have decreased
considerably during the past couple of years. 48 states have now enacted
protection acts with Oregon amending its statute during 2013.

Case Law - Several cases decided in 2013 have the potential to significantly impact secondary market business standards and practices. "Structured Settlements and Periodic Payment Judgments" (S2P2J) will report on the following cases discussed during the NASP conference in upcoming Release 55:

Settlement Funding v. Cathy Brenston

Symetra v. Rapid Settlements

Hartford Life v. Estate of Solomon

In re: Porter

J.G. Wentworth Originations v. Mobley

Brenston Case
- S2KM will discuss the Brenston case, which is currently subject to a
petition for review by the Illinois Supreme Court, in subsequent blog
posts. A 5th District panel, sitting for the 4th District Illinois Court
of Appeals, previously held that because Brenston’s settlement
agreement contained an enforceable anti-assignment provision, the
transfer court had a duty to enforce that provision and “it had no authority under the Act to approve” the transfer petitions.

Special Needs Attorneys
- Rajiv Goel, addressing capacity issues, was the first special needs
attorney to speak at a NASP conference. At prior special needs
conferences S2KM has attended, attorneys frequently criticize primary
market consultants for "over structuring" and for opposing
single claimant qualified settlement funds. In addition, several state
Medicaid agencies are attempting to disqualify structured settlement
funded special needs trusts because of the potential liquidity
(resources) available via the secondary market. Primary and
secondary structured settlement market participants appear to have
shared interests in improving their special needs public relations and
lobbying strategy.

Although
a final Schedule 1.15 has not yet been published, benefit reductions
for ELNY structured settlement recipients may be 3-4% greater than
originally predicted.

Guarantee Association Benefit Company
(GABC), ELNY's D.C.- based successor insurer under NOLHGA's control, has
not yet disclosed any information about the expenses association with
ELNY's liquidation or the investment performance of ELNY's assets during
and/or following ELNY's liquidation.

Despite shortfalls
experienced by more than 1400 ELNY structured settlement recipients,
none of the participating state Guarantee Associations paid out their
full coverage amounts.

GABC is flagging factoring transactions which are not receiving supplemental benefits.

The ELNY class action lawsuit remains on hold while the appeal of Judge Galasso's contempt order is pending.

Judicial Panel
- NASP's Judicial Panel provided opportunities for both the judges and
conference attendees to ask each other questions and to communicate
problems they have experienced during transfer proceedings. Speaking for
the panelists, Judge Bise, who attended the entire conference, stated "I have learned a lot. We would appreciate NASP continuing to educate us on transfer issues."

Primary Market Panel
- Panelist William Schemmel, legal counsel for the Western &
Southern Financial Group, which owns Integrity Life among other
affiliates, was one of two representatives of former primary market
annuity providers attending the NASP conference. Similar to the judicial
panel, Schemmel's discussion of transfer issues and problems was
practical and productive without the political invective which
frequently and unfortunately characterizes transfer discussions at
primary market conferences.

METLife's New Transfer Policies
- Despite IRC 5891 and state protections acts, structured settlement
annuity providers retain the ability to prevent payment right transfers
by enforcing anti-assignment clauses in applicable settlement documents.
Generally, however, for the cost of an administrative fee, structured
settlement annuity providers have cooperated with factoring companies
and payee/transferors since 2002 to enable court-approved transfers.
During his case law update, NASP Executive Director Earl Nesbitt
reported METLife has now reversed course and has begun challenging this
cooperative spirit with new transfer policies prohibiting two previously
existing industry standards: 1) transfers of partial payments; and 2)
factoring companies assuming administrative responsibility for
post-transfer payments.

July 23, 2013

Publisher Law Journal Press anticipates an October 2013 distribution date for hardcopy supplements for Release 54 of "Structured Settlements and Periodic Payment Judgments" (S2P2J)
with online S2P2J subscribers receiving their update simultaneously at
no additional charge.

Online S2P2J includes a search feature and
download capability as well as link features to access individual book
sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored byDaniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Negotiating Structured Settlements vs. Cashing Out -
Why and when should defendants agree to structured settlements as
opposed to lump sum settlements? Do defendants save money using
structured settlements and, if yes, why and how? Do structured
settlements result in additional costs and risks for defendants and, if
yes, how do defendants reduce these costs and risks? Release 54 examines
these questions in the context of existing state statutes and case law
and offers recommendations for defendants when they review their
traditional structured settlement policies and business practices. The
recommendations include new sample structured settlement Mission and
Disclosure Statements for liability insurers.

Insurance Company Insolvencies
- Release 54 expands and updates S2P2J's already extensive coverage of
insurance company insolvencies including state insurance guaranty
associations and the most recent developments impacting Executive Life
of New York [ELNY] and Reliance Insurance Company. Following ELNY's 22
years of New York State supervised "rehabilitation", S2P2J's Release 54
identifies lessons that potential structured settlement recipients and
their attorneys and advisers can and should learn from the ELNY debacle.

Medicare Set-Aside Arrangements
- Release 54 re-organizes and promotes S2P2J's coverage of Medicare
set-aside arrangements (MSAs) with updated materials for both workers
compensation (WC) MSAs and liability MSAs. These updates include an
extensive summary and analysis of the structured settlement provisions
in the new CMS WCMSA Reference Guide as well as conclusions and
recommendations for utilizing MSAs in personal injury liability cases.

Re-cycled Structured Settlement Payment Rights
- As low interest rates continue to negatively impact the primary
structured settlement market, new products featuring re-cycled
structured settlement payment rights have begun to proliferate as
funding alternatives for personal injury periodic payment settlements.
Release 54 features a new section with detailed diagrams and charts (designed by Timothy Morbach) to
explain the several variations of these products. In addition, this new
section compares the features of these products with traditional
structured settlements and summarizes recent investor warnings about
these products issued by the SEC and FINRA.

Securitization of Structured Settlement Payment Rights - S2P2J already includes a detailed Chapter 16 titled "Transfers of Structured Settlement Payment Rights"
which provides comprehensive coverage of most structured settlement
secondary market issues. This coverage includes: the history of the
secondary market; summary and analysis of IRC section 5891 and the state
structured settlement protection acts; and how judges review (or should
review) transfer applications. Release 54 adds a new section, with
detailed diagrams and charts (designed by Timothy Morbach), explaining how securitization of
structured settlement payment rights works.

Australia Structured Settlement Update
- S2P2J continues to track structured settlement developments in
countries outside the United States including Canada, the United
Kingdom, Continental Europe, Australia and New Zealand. Release 54
highlights a recent legislative development in Australia called “The
Lifetime Care and Support Scheme” which provides treatment,
rehabilitation and attendant care services to people severely injured in
automobile accidents. At least one Australian structured settlement
expert believes this legislative development could prevent an
annuity-funded structured settlement market from developing in Australia
anytime soon.

"Structured Settlements and Periodic Payment Judgments"
is a complete reference work for attorneys, settlement planners,
structured settlement consultants, risk managers, liability insurers,
annuity providers and secondary market participants. It is available in
both hardcopy and online versions which are updated semi-annually. For highlights from previous S2P2J updates, see the structured settlement wiki.

February 07, 2013

Moody's Investors Service has announced a downgrade of its Corporate Family Rating (CFR) for JG Wentworth (JGW) from B3 to Caa1
and has issued the same downgrade for JGW's new $425 million senior
secured term loan and $20 million senior revolving credit facility
issued by Orchard Acquisition Company, a subsidiary of JGW. Moody's
outlook for both the CFR and the debt ratings is "stable".

Under Moody's credit rating scale, "B3" signifies a long-term rating "judged as being speculative and a high credit risk" and "Caa1" signifies a long-term rating "rated as poor quality and very high credit risk."

Moody's CFR and debt ratings for JGW are separate and distinct
from financial agency ratings applicable to JGW securitizations of
structured settlement payment rights which historically have been rated
as high quality and low risk investments.

Bloomberg Newsreported in early January 2013 that JLL Partners,
owners of JGW, had abandoned plans to sell the company after bids
failed to meet expectations and might consider a dividend
recapitalization or an initial public offering instead.

Moody's announcement confirmed "JGW
is undergoing a leveraged recapitalization that will result in a
tripling of the company's corporate debt as it pays its shareholders a
very substantial dividend....Net proceeds from the $425 million Senior
Secured Term Loan issuance will be used to finance a $309 million
capital distribution to JGW's shareholders as well as to repay an
existing $142 million term loan."

Moody's identifiedmultiple reasons for its downgrade of JGW:

JGW's leveraged recapitalization will result in a "meaningful increase in leverage and decrease in debt service coverage."

It also "indicates
a more aggressive financial policy than was anticipated in the previous
B3 rating, given the large size of the capital distribution, the
notable increase in debt service requirements and accompanying high
corporate leverage."

Downgraded - If JGW's "liquidity
risk increases, such as through a failure to renew major warehouse
lines or securitize receivables, or due to reduced cash flows, such as
through a decrease in net yield, loss of market share or a material
adverse legal or regulatory ruling."

As S2KM reported in this prior blog post, JGW, which was founded in 1995, has experienced a tumultuous recent history:

On June 1, 2009, JGW and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market".

Also in 2011, JGW merged
with Peachtree Settlement Funding (Peachtree) in a stock swap, with JLL
Partners retaining control of the merged companies which have each
continued to participate in the secondary market.

Industry
estimates obtained by S2KM of the post-merger 2012 market share (revenue
and sales) of the now-combined JGW/Peachtree vary from a low of 50% to a
high of 75%.

Some industry experts believe JGW/Peachtree's
share of the estimated 2012 industry profits of $120 million was $100
million, or 83%.

For example, in a recent "Secondary Market Update", S2KM reported the following 2013 structured settlement secondary market projections by DBRS, a rating agency that covers various structured finance product groups: "Based
on the estimated 15% increase in issuance in 2012 to $630 million, DBRS
expects further 10%+ increase in issuance in 2013 amid the continuing
popularity of the [structured settlement] asset class among certain investors."

Additional Resources

For additional S2KM reporting and commentary about the structured settlement secondary market, see the structured settlement wiki.

For more comprehensive legal analysis about transfers of structured settlement payment rights, see Chapter 16 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

April 17, 2012

S2KM's summary of Judge John M. Galasso's Memorandum Decision for Executive Life of New York (ELNY) left open the question of whether Judge Galasso had granted judicial immunity to the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver.

Immunity Issue

The corresponding Order of Liquidation and Approval of the ELNY RestructuringAgreement signed by Judge on April 16, 2012 confirms the grant of immunity as follows:

"Judicial immunity is extended to the Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents and employees, and such immunity is extended to them for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

Although expected, this judicial grant of immunity is controversial because, according to some legal experts:

New York insurance laws do not specifically grant legal immunity to the Superintendent, as Receiver.

ELNY was not judicially determined to be insolvent until Judge Galasso signed the April 16, 2012 Order.

The Superintendent and its agents, including the NYLB, have "managed" ELNY since it first entered Rehabilitation in 1991.

For background about the immunity issue, see "The Trouble with ELNY", S2KM's review of an article by Peter Bickford.

Factoring Companies

Neither the ELNY Memorandum Decision nor the Liquidation Order address another controversial ELNY issue: whether participating state guaranty associations (PGAs) will provide coverage for ELNY structured settlement annuities where payment rights have been transferred to factoring companies and subsequently sold to investors as securities.

One result of protecting factoring companies and ELNY structured settlement payment right investors could be a reduction in funds available to other ELNY shortfall victims. Some industry experts have estimated that payment rights from as many as 1000 of ELNY's 4168 structured settlement annuities (SSAs) have been transferred to factoring companies and their investors.

According to Schedule 1.15 of the ELNY Restructuring Agreement, 1459 SSAs will experience shortfalls ("uncovered amounts") as a result of ELNY's liquidation and restructuring even assuming state guaranty association contributions and enhancements.

No Closing Date Set

Neither the ELNY Memorandum Decision nor the Liquidation Order identify a closing date for the ELNY Restructuring Agreement. Until that date, the Receiver is directed to continue full payment of all benefits for all ELNY contracts. The Court will retain subject matter jurisdiction over the Restructuring Agreement and ELNY successor company, Guaranty Association Benefits Company (GABC).

The ELNY Liquidation Order requires that all claims against ELNY must be presented to the Receiver within four months of ELNY's Liquidation Date. However, all ELNY policyholders and "holders of Claim-Overs" who appear on ELNY's books and records as of Liquidation Date are deemed to have satisfied this requirement.

The ELNY Liquidation Order requires the Receiver to provide notice of the Order to all ELNY creditors, policyholders and other interested parties and provides a Notice Form as an Exhibit.

November 09, 2010

These polar-opposite imperatives for the structured settlement industry represent S2KM's two strategic lenses for reporting and analyzing simultaneous educational programs this week in Las Vegas sponsored by the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP).

S2KM's Managing Director, Patrick Hindert, will attend portions of the NSSTA conference (as a NSSTA member and former NSSTA President) and participate in NASP's Friday morning "Industry Analysis" program (as a moderator and speaker). S2KM's continued reporting and commentary about the NSSTA and NASP conferences will appear on this S2KM blog ("Beyond Structured Settlements") as well as S2KM's structured settlement wiki.

NSSTA's strategic mandate is to "protect and preserve".

Question: what exactly does NSSTA want to "protect and preserve"?

The simple answer: Internal Revenue Code sections 104(a) and 130.

More strategically, what NSSTA wants to "protect and preserve" (to the extent possible) are business models and business practices ("good old days") that existed prior to:

One result of NSSTA's "protect and preserve" mandate has been a "dumbing down" of NSSTA's educational programs - at least from a strategic perspective. Some of NSSTA's technical discussions are excellent. For example, NSSTA's legal committee has re-emerged as a leading structured settlement educational resource. And NSSTA's CSSC certification program continues to receive positive reviews despite low attendance and the lack of a continuing education (CLE) requirement.

NSSTA's primary educational problem is the application of its narrow and political strategic framework ("protect and preserve" as opposed to "improve and grow") for its educational programs. For example, NSSTA never invites knowledge leaders from NASP or SSP (or anyone critical of NSSTA political objectives) to participate in NSSTA's educational programs. For another related example, NSSTA educational programs never provide strategic discussions ("Industry Analysis") with alternative perspectives.

Bottom line: NSSTA's educational programs have fallen behind NASP and SSP who now represent the benchmarks for structured settlement educational excellence. For further S2KM reporting about NSSTA's educational demise, see: S2KM's analysis of NSSTA's 2009 educational program. Unfortunately, NSSTA's announced 2010 educational program looks like "the same old, same old" - at least from S2KM's strategic perspective.

By comparison with NSSTA, NASP will devote three hours of its 2010 educational program this week in Las Vegas specifically to "Structured Settlement Industry Analysis". This portion of the NASP program is subtitled: "How to Improve and Grow the Structured Settlement Industry".

November 07, 2010

The National Structured Settlement Trade Association ( NSSTA ) and the National Association of Settlement Purchasers ( NASP ) have announced agendas and speakers for their 2010 educational conferences scheduled concurrently and coincidentially next week (November 10-12, 2010) in Las Vegas.

S2KM has published an introductory report for these conferences plus historical reporting about past NSSTA and NASP educational conferences. S2KM's Managing Director, Patrick Hindert, will attend portions of the NSSTA conference (as a member) and participate at the NASP conference (as a moderator and speaker).

S2KM recommends both the NSSTA and NASP educational conferences to all structured settlement stakeholders and offers this preliminary comparative analysis.

Topics

NSSTA and NASP will both address several similar issues:

Ethics - NSSTA and NASP could enhance their discussions by addressing "business practices" including the "Standards of Professional Conduct" adopted by the Society of Settlement Planners (SSP) on March 7, 2008.

Life expectancy - hopefully, NSSTA will link this discussion with related Medicare and Medicaid issues. Whatever happened to the structured settlement industry's life expectancy study initiated by Roger Harbin and Steve Smith?

NASP

Industry analysis - NSSTA's educational programs typically provide limited strategic analysis with only one perspective and no outside critics. NASP features more open discussion of strategic industry issues featuring critics and alternative perspectives.

Taxation life cycle - Both NASP and SSP have previously featured Jeremy Babener as a speaker. Why not NSSTA? Babener's NASP presentation promises to be one of the highlights of these two structured settlement educational conferences.

Dodd Frank legislation - a good example of NASP analysis of federal legislation that impacts both the primary and secondary structured settlement markets.

Speakers

NSSTA and NASP speakers both include a mix of association members and non-members. Both associations typically feature judges, attorneys and legislators as speakers. NSSTA's legislative speakers are generally federal while NASP's legislative speakers are generally state.

NSSTA speakers do not include SSP or NASP members. NASP speakers include both NSSTA and SSP members and thereby generate more comprehensive and valuable strategic discussions.

Professional association meetings - S2KM will report structured settlement and settlement consulting educational results from four (4) professional association meetings during the first six (6) months of 2010:

December 06, 2009

Standard & Poor's Rating Services (S&P) has announced
a refinement of its methodology and assumptions for rating structured
settlement payment securitizations. The revised criteria, effective
December 2, 2009 for all new and outstanding structured settlement
securitizations, incorporate:

S&P's new criteria for structured settlement securitizations appear in an S&P article titled "Update to Methodology And Assumptions And New Supplemental Tests for U.S. Structured Settlement Payment Securitizations".

S&P's revised ratings for structured settlement securitizations will:

Use the latest version of CDO Evaluator (version 5.0)
when analyzing structured settlement securitizations. The CDO Evaluator
is S&P's analytical tool for estimating the defaults and losses of
collateralized debt obligation (CDO) transactions at different rating
levels.

Typically apply:

the largest-obligor default
test to tranches at all rating levels to access a given tranche's
ability to withstand specified combinations of insurance company
defaults, assuming an immediate flat rate of 50%;

the
largest-industry default test or the alternative-industry default test,
which ever is applicable, to tranches at the 'AAA', 'AA+', 'AA', and
'AA-' rating levels, assuming an immediate flat recovery of 60%.

Use
the results of the two supplemental tests without running cash flows to
assess whether the tranche in question is likely to have sufficient
credit enhancement to absorb the losses at each rating level.

To achieve an S&P rating, a structured settlement transaction tranche:

must have sufficient credit enhancement to withstand the level
of defaults the CDO Evaluator generates in relation to the asset
portfolio under the associated cash flow stresses, and

must also pass the two supplemental tests applicable at the given rating level.